Reform on Sales Channels & Implementation of Para-direct Operation Model Yield Notable Results
For the twelve months ended 31 December
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HONG KONG, CHINA – Media OutReach – 27 February 2019 – The leading international sportswear brand enterprise in the PRC, China Dongxiang (Group) Co., Ltd. (“China Dongxiang” or “the Company”, together with its subsidiaries, “the Group”, HKEx stock code: 3818) announces its unaudited second interim results for the twelve months ended 31 December 2018 (“reporting period”). The Group’s revenue for the reporting period increased by 17.3%, year-on-year (“YoY”), to RMB1,706 million, while profit attributable to equity holders of the Company reached RMB315 million with the basic earnings per share as RMB5.44 cents. The Group’s profit fell mainly due to negative factors including the trade war. In the second half of 2018, major global stock market indexes has recorded continued drop. The price of the shares that the Group held, including Alibaba, has fallen accordingly. As at the date of this results announcement, the loss from the drop in price of stock has however been fully recovered as a result of the improved performance of stock markets. The Board resolved not to declare any interim dividend for the twelve months ended 31 December 2018.
Operational Highlights of 2018
- China Segment: Introduction of New Customers and Launch of New Model
As at 31 December 2018, the revenue of Kappa brand increased by 20.3% YoY to RMB1,370 million. During the reporting period, the Group made diligent efforts to optimise its existing store mix and actively establish top stores, shopping-mall stores and outlets, while renovating and closing underperforming stores in an ongoing move to consolidate reforms at deeper levels. Benefiting from a highly effective reform on sales channels, the same store sales and retail performance of the Group maintained stable growth. In the meantime, the brand continued to adopt a 360-degree brand marketing through a combination of online and offline activities by closely cooperating with new media and top stars in China and actively participating in international fashion events, leading to a greater recognition worldwide of Kappa’s brand image of being “rebellious, passionate and outgoing”. In addition, the Group continued to develop a new para-direct operation model to further secure sufficient supply of products, laying a concrete foundation for enhancement of the Group’s operational performance. With regards to E-commerce, as an integral part of the business of the Group, its performance for the period was in line with expectation. In 2018, the Group continued to penetrate into major e-commerce platforms, such as Tmall, JD.com and VIP.com, by actively participating in their large-scale promotion activities.
- Kappa Kids
In 2018, the kid’s wear business continued to make progress in a stable manner. As the popularity of the “Chinese Football Boy” (中國足球小將) campaign sponsored by “Kappa Kids” has been on the rise, the Chinese Football Boys have been arranged to participate in friendly matches with the top international youth football teams in addition to the nationwide games in full swing, resulting in a further enhancement of brand awareness and its influence in kidswear industry. The revenue of kid’s wear business for the Reporting Period reached RMB130 million, accounting for 9.5% of the revenue from the China segment.
As at 31 December 2018, the Group had a total of 1,496 Kappa stores (including 316 Kappa Kid’s stores), representing a net increase of 9 as compared to that as at the end of December 2017.
- Japan Segment: Progressive Improvement in Financial Performance and Exploration of New Sources for Customers
The Japan business continued to undergo reforms in 2018. During the Reporting Period, revenue from Japan segment grew significantly and financial loss shrank substantially with an improved financial condition as compared with the same period of last year. As overseas tourists to Japan have become a new potential source for customers, the Group has made greater efforts in products promotion at the renowned sightseeing spots for autumn and winter in Japan so as to develop a new business engine for growth. Additionally, the Group continued to relish a huge opportunity in winter sports by vigorously developing and expanding PHENIX brand in China and Europe. PHENIX China has positioned itself well in advance for the coming of Beijing 2022 Winter Olympics since 2018 by focusing on omni-channel expansion, club member services and brand marketing, achieving progressive increase in brand awareness.
- Investment Segment: High Responsiveness and Sensitivity to Market Change with Progress Made in a Cautious Way
In 2018, part of the Group’s investment projects was affected by the general fluctuation of the global capital market, but the size and risks of the Group’s investments were effectively controlled with the priority of capital safety and reasonable return by pooling the Group’s considerable experience in investment and risk management. As at 31 December 2018, the Group reported net asset value of its investments of RMB9,231 million, an increase of 6.8% as compared with that in 2017, and a 49.2% surplus over the market capitalisation of the Group for the corresponding period. During the Reporting Period, the Group had investment net gains of RMB424 million. Looking forward, the Group will extra caution in selecting cooperation partners and investment projects and release the value of the projects in a timely manner, so as to secure stable returns from investments as well as capital safety and effectiveness.
Mr. Chen Yihong , Chairman and Executive Director of China Dongxiang, said, “In 2018, domestic and international environment was complicated and complex with tougher competition in the industry. In order to grasp the potential opportunities during the new development stage of the sports gear industry, we continued to deepen our reform and achieved some progress with initial achievements by leveraging on extensive experience in the industry. As a company that has been established for sixteen years, China Dongxiang will continue to move forward with our ‘work hard’ spirit, and strive for new milestones in the future.”
About China Dongxiang (Group) Co., Ltd. (Stock code: 3818)
China Dongxiang (Group) Co., Ltd. is a leading international sportswear brand enterprise in China which has been listed on the Main Board of the Hong Kong Stock Exchange since 10 October 2007. The Group is primarily engaged in the design, development, marketing and wholesale of branded sportswear in China. Currently, China Dongxiang owns all rights to the internationally renowned Kappa brand in China, Macau and Japan. On 1 May 2008, China Dongxiang completed the acquisition of PHENIX, a Japanese sportswear enterprise. PHENIX is the most popular ski brand in Japan with the largest market share, as well as a well-known brand in the international market.